Interview with Pimcos Bill Gross

In a broadcast interview with FOX Business NetworkÃ¢â‚¬â„¢s Liz Claman, Bill Gross, Founder and Managing Director of Pimco, the worldÃ¢â‚¬â„¢s biggest bond mutual fund, talks about his suspicion towards third quarter GDP growth, on who will benefit from the FedÃ¢â‚¬â„¢s rate cut and what he thinks the FedÃ¢â‚¬â„¢s next move will be. Excerpts are below.

On who will benefit from Fed rate cut:

Ã¢â‚¬Å“The big banks with their SIVS and conduits will benefit from 25 basis points in cuts and will continue to benefit more if the Fed cuts more in 2008, which is what I expect.Ã¢â‚¬Â

On whether the Fed has staved off a recession:

Ã¢â‚¬Å“I think so. IÃ¢â‚¬â„¢m not sure we were ever headed there because of the strong export numbers weÃ¢â‚¬â„¢ve seen as recently as this morning and the continued weakness of the dollar, which supports that. It has been exports that have saved the day. Otherwise, when you have housing prices go down by five or ten percent on a national basis, youÃ¢â‚¬â„¢re bound to have a recession. In this case, strong global growth has saved the day.Ã¢â‚¬Â

On 3.9% GDP growth for third quarter:

Ã¢â‚¬Å“IÃ¢â‚¬â„¢m a little suspicious of that 3.9 number because the nominal number, which is real plus inflation, was really only about 4.7%, which was lower than the market expected. The number that was released suggested that inflation was.8% in the third quarter and for all of us who have been around and pay prices, we know that inflation was more than .8% so IÃ¢â‚¬â„¢m a little suspicious of that real number.Ã¢â‚¬Â

On the FedÃ¢â‚¬â„¢s next move:

Ã¢â‚¬Å“I think the Fed probably pauses in December depending on housing and where those numbers are going. I think housing is headed down rapidly and the Fed will have to lower interest ratesÃ¢â‚¬Â¦Ultimately, I think theyÃ¢â‚¬â„¢re headed below 4%, particularly during cyclical downturns – not recessions Ã¢â‚¬â€œ but periods of slow growth. TheyÃ¢â‚¬â„¢ve had to lower Fed funds to what is known as a one percent real rate, which means one percent real rates plus inflation, which would suggest to me somewhere in the 3.5 % zone.Ã¢â‚¬Â

On whether he trusts the government data released today:

Ã¢â‚¬Å“I think there are differences. Not to suggest a conspiracy here. This GDP number was a residual that came off the nominal number, which was 4.7% and somehow it turned out to be 3.9 real. I donÃ¢â‚¬â„¢t really think thatÃ¢â‚¬â„¢s the case. I think there was more inflation than .8% and, ultimately, going forward, real GDP is somewhere in the 1-2% zone as opposed to the high threeÃ¢â‚¬â„¢s.Ã¢â‚¬Â